In preparing the statement of cash flows by the indirect method,a decrease in prepaid expenses would be added to net income.

Question

Quizplus · Accepted Answer

This is because a decrease in prepaid expenses indicates that cash has been paid for these expenses in a previous period, and they are now being recognized as expenses in the current period. Thus, the decrease in prepaid expenses would need to be added back to net income to reflect the cash outflow that has already occurred.

In Preparing the Statement of Cash Flows by the Indirect